HDFC Bank Ltd. expects its merger with parent Housing Development Finance Corp. Ltd. to be completed ahead of schedule, an indication that the combining of two of India's biggest financial services companies is proceeding smoothly.
The merger could be completed "a quarter or a few months early," said Srinivasan Vaidyanathan, HDFC Bank's chief of finance, during the lender's Oct. 15 earnings call.
The company previously indicated that the process would be completed in around the second or third quarter of the fiscal year ending March 2024. "The rate it is going, it may be Q1 [or] Q2. ... It is running ahead," said Vaidyanathan.
HDFC Bank, the country's largest private-sector lender by assets, is merging with its mortgage lender parent in a bid to create a financial services giant that can compete with rivals in the home loans market. HDFC Bank's loans will rise 42% to 18 trillion rupees, taking its overall share in loans to 15% from about 11% now, S&P Global Ratings said in an April 4 note when the deal was announced.
The bank's revenue and margins will gradually grow further "while the merger-related overhang ebbs," according to an Oct. 16 note from Motilal Oswal.
The merger plan received no objections from the Reserve Bank of India in July. However, it is still subject to various other regulatory approvals, including a nod from the National Company Law Tribunal. There are also outstanding issues with the future of the various subsidiaries, particularly HDFC's insurance joint ventures. The reserve bank reportedly wants to limit bank ownership in insurance companies, Reuters reported April 5.
Profit growth
HDFC Bank reported during the Oct. 15 earnings call that net profit in the fiscal second quarter ended Sept. 30 rose 20.1% year over year to 106.06 billion rupees. Net interest income grew 18.9% to 210.21 billion rupees.
The bank expects core profitability to improve on better margins and fees but will be partially offset by investments in branches and people in a run-up to the merger. The bank had increased its branch network to 6,499 branches as of Sept. 30 from 5,686 branches in the prior-year period. CFO Vaidyanathan said during the earnings call that the bank has 500 branches in the pipeline that will be opened in the next few months.
"A strong focus on driving up retail share, which coupled with continued asset repricing, should keep margins in shape despite the recent deposit rate hikes," according an Oct. 16 note from Emkay Global.
